This paper considers tests for structural instability of short duration, such as at the end of the sample. The key feature of the testing problem is that the number, m, of observations in the period of potential change is relatively small—possibly as small as one. The well-known F test of Chow (1960) for this problem only applies in a linear regression model with normally distributed iid errors and strictly exogenous regressors, even when the total number of observations, n+m, is large. We generalize the F test to cover regression models with much more general error processes, regressors that are not strictly exogenous, and estimation by instrumental variables as well as least squares. In addition, we extend the F test to nonlinear models estimated by generalized method of moments and maximum likelihood. Asymptotic critical values that are valid as n→∞ with m fixed are provided using a subsampling-like method. The results apply quite generally to processes that are strictly stationary and ergodic under the null hypothesis of no structural instability.

This paper examines precautionary behavior by relating job-loss risk to household net worth. We use existing best practice and some new strategies to deal with some problematic issues inherent in this literature regarding proxying uncertainty, instrumentation, and incorporating theoretical restrictions. We do not find precautionary variation in the wealth holdings of households with low permanent income, but do find precautionary effects for moderate and higher-income households. When the dependent variable is total net worth, these findings are robust to several alternative specifications. But we do not find precautionary responses in subaggregates of wealth that exclude home equity.

The paper studies bilateral contracting between one principal and N agents when each agent's utility depends on the principal's unobservable contracts with other agents. We show that allowing deviations to menu contracts from which the principal chooses bounds equilibrium outcomes in a wide class of bilateral contracting games without imposing ad hoc restrictions on the agents' beliefs. This bound yields, for example, competitive convergence as N →∞ in environments in which an appropriately-defined notion of competitive equilibrium exists. We also examine the additional restrictions arising in two common bilateral contracting games: the “offer game” in which the principal makes simultaneous offers to the agents, and the “bidding game” in which the agents make simultaneous offers to the principal.

Between 1984 and 2001, the share of nonelderly adults receiving Social Security Disability Insurance income (DI) rose by 60 percent to 5.3 million beneficiaries. Rapid program growth despite improving aggregate health appears to be explained by reduced screening stringency, declining demand for less skilled workers, and an unforeseen increase in the earnings replacement rate. We estimate that the sum of these forces doubled the labor force exit propensity of displaced high school dropouts after 1984, lowering measured U. S. unemployment by one-half a percentage point. Steady state calculations augur a further 40 percent increase in the rate of DI receipt.

We propose a boundedly rational model of opinion formation in which individuals are subject to persuasion bias; that is, they fail to account for possible repetition in the information they receive. We show that persuasion bias implies the phenomenon of social influence, whereby one's influence on group opinions depends not only on accuracy, but also on how well-connected one is in the social network that determines communication. Persuasion bias also implies the phenomenon of unidimensional opinions; that is, individuals' opinions over a multidimensional set of issues converge to a single “left-right” spectrum. We explore the implications of our model in several natural settings, including political science and marketing, and we obtain a number of novel empirical implications.

This paper studies whether agents must agglomerate at a single location in a class of models of two-sided interaction. In these models there is an increasing returns effect that favors agglomeration, but also a crowding or market-impact effect that makes agents prefer to be in a market with fewer agents of their own type. We show that such models do not tip in the way the term is commonly used. Instead, they have a broad plateau of equilibria with two active markets, and tipping occurs only when one market is below a critical size threshold. Our assumptions are fairly weak, and are satisfied in Krugman's model of labor market pooling, a heterogeneous-agent version of Pagano's asset market model, and Ellison, Fudenberg, and Möbius' model of competing auctions.

This paper explores the competition between two trading venues, Electronic Communication Networks (ECNs) and Nasdaq market makers. ECNs offer the advantages of anonymity and speed of execution, which attract informed traders. Thus, trades are more likely to occur on ECNs when information asymmetry is greater and when trading volume and stock‐return volatility are high. ECN trades have greater permanent price impacts and more private information is revealed through ECN trades than though market‐maker trades. However, ECN trades have higher ex ante trading costs because market makers can preference or internalize the less informed trades and offer them better executions.

This paper investigates the role of seasonal affective disorder (SAD) in the seasonal time-variation of stock market returns. SAD is an extensively documented medical condition whereby the shortness of the days in fall and winter leads to depression for many people. Experimental research in psychology and economics indicates that depression, in turn, causes heightened risk aversion. Building on these links between the length of day, depression, and risk aversion, we provide international evidence that stock market returns vary seasonally with the length of the day, a result we call the SAD effect. Using data from numerous stock exchanges and controlling for well-known market seasonals as well as other environmental factors, stock returns are shown to be significantly related to the amount of daylight through the fall and winter. Patterns at different latitudes and in both hemispheres provide compelling evidence of a link between seasonal depression and seasonal variation in stock returns: Higher latitude markets show more pronounced SAD effects and results in the Southern Hemisphere are six months out of phase, as are the seasons. Overall, the economic magnitude of the SAD effect is large.

We examine the expiration of the IPO quiet period, which occurs after the 25th calendar day following the offering. For IPOs during 1996 to 2000, we find that analyst coverage is initiated immediately for 76 percent of these firms, almost always with a favorable rating. Initiated firms experience a five‐day abnormal return of 4.1 percent versus 0.1 percent for firms with no coverage. The abnormal returns are concentrated in the days just before the quiet period expires. Abnormal returns are much larger when coverage is initiated by multiple analysts. It does not matter whether a recommendation comes from the lead underwriter or not.